This chapter is from the book

The loan shark who bragged about making $40,000 in commissions off of one homeowner contacted me again. Last time we met, we enjoyed filet mignon at an upscale restaurant, Daniel’s Broiler, overlooking Lake Washington, and he divulged to me his secret for overpricing loans, which I revealed to the world in Mortgage Rip-Offs and Money Savers. What would he have to say to me now? I wondered if he’d be angry.

I couldn’t help but shudder at the sound of his voice over the phone, and yet, I couldn’t resist the invitation to meet with him again. I just had to know how his “story” ended. Had he reached his goal of retiring rich while still a young man?

He suggested we get together at Starbucks, quite a step down from the elegant steak house we dined at before, but I didn’t care. For me, it was all about the insider information.

So with a tall skinny DoubleShot in hand, I settled comfortably into a mocha-hued leather chair to hear what Mr. Big Commissions had to say. He wasted no time getting right to the point.

“What if I could show you how people can pay off their 30-year mortgage in seven to ten years without refinancing and without changing their current lifestyle—would you be interested?” he asked.

“Yes, of course,” I said.

“And if I could also show you how people can leverage themselves to have a million dollars or more in savings in the time they’d normally pay off their mortgage, would that be even better?”

“Yes, of course.”

“Great. Then if I show you this and it makes sense to you, is there any reason why you and I couldn’t do business together?”

“Good job asking a preclosing question,” I said, recognizing the sales tactic. I couldn’t help but smile. This was going to be good. “So what is it?”

He chuckled and sat a little taller in his chair, like he was pleased at the rapport he was building. “You see how easy that was? Everybody says yes at that point. And here’s the beautiful thing: With this program, you generate passive income. Agents are making 30 grand a month—for part-time work.”

Passive income? Money coming in with no more work required? At that point, I knew it had to be some kind of multilevel marketing plan where the people at the top of the pyramid got paid on the sales their recruits made; before I could ask, he whipped out the latest edition of Broker-Banker Magazine and showed me the feature article endorsing the equity acceleration program. According to the article, the founders of the company were all about helping America get out of debt. The publisher of the magazine proclaimed, “This is the real deal.”

It was a doozy, all right—one of those “too good to be true” things. But it looked so good on paper, people were eating it up, sales were booming, and anyone who passed a super simple test had the opportunity to make a ton of money.

And when money pours in, you know what happens next. Copycats decide they want a piece of the action, and they start up businesses with essentially the same program, but with a different name and logo.

Soon after, in came the e-mails from folks asking me about equity acceleration programs. Sure enough, the sales agents were busy recruiting other sales agents and the word was spreading. The homeowners contacting me now wanted to know whether or not this program was legitimate. (My response is in Chapter 27, “Deception Exposed.”) People now are less naive, asking more questions than they did a few years back, before jumping into something.

That is a good thing.

Ever since the mortgage meltdown of 2007, the world of credit, homebuying, refinancing, and equity management has changed. Over 250 lenders died a slow and painful death, or in some cases, a sudden crash and burn. Tens of thousands of loan officers were out the door and even more were struggling to hang on and ride out the storm, hoping for better days ahead. Others moved on to new schemes, looking to make just as much money, only this time, with less work required.

Ethical loan officers working in the best interests of their clients did what they could to be a light in their spheres of influence, but the economic crash was a behemoth involving too many players in high places, too big to control.

Bad Practice

Taking a risky loan, paying too much, and glossing over the details of your contract.

Good Practice

Understanding the terms of your loan and choosing low-risk financing.

Teaser rates, deceptive “pick-a-payment” loans that gobbled up home equity like a hungry hippo, giant prepayment penalties, loans for people with no verifiable income, and other insanities led to the mortgage meltdown of 2007–2008. On multiple occasions, I tried to stop borrowers from signing toxic loans, but they would have none of it.

One evening, I called a nurse to warn her that her loan was obscenely priced and to explain how she could get a fair deal. I was incensed that a greedy loan shark would take advantage of a woman who had served in a hospital, caring for the sick, for 25 years, and I wanted to help. But instead of being grateful, she responded by filing a complaint against me for meddling in her business.

All that is history now...so has the craziness ended? Or has the absurdity simply reinvented itself for the current conventional market? Take a clue from these recent true stories...

Bad Practice

Paying for nonsense fees you don’t understand that serve no purpose except to pad profits.

Good Practice

Feeling confident about your financing because you work with a loan officer who is your advocate, who explains everything clearly, and who treats you right.

A banker surprises her homebuyer with an $11,000 “Discount Fee” that did not appear on the original Good Faith Estimate. When the homebuyer asks what the new fee is for, the bank’s loan officer replies, “I don’t put the Discount Fee on the Good Faith Estimate so as not to confuse people.” Then she slides into some rhetoric about how she thinks God led the homebuyer into her office—or should I say, her spider web?

An escrow company charges $100 to transport loan documents back to the lender by Fed Ex and a $40 courier fee to transport the loan documents. So are the documents going by Fed Ex or by courier? And since when does Fed Ex charge a hundred bucks for an envelope with 50 sheets of paper? When I call the president of the escrow company about this nonsense, he says, “Those fees don’t go to Fed Ex or to a courier; they’re just for our own profit.”

“So they’re bogus fees?” I ask.

“They’re just there for our profit. We use a courier for about half our loans, but charge it on all,” he confesses. Evidently, he doesn’t think the $650 escrow fee and the $85 doc prep fee are enough profit, so he fabricates two more fees—from the president’s mouth straight to my ears.

A self-proclaimed mortgage expert tells loan officers not to worry about the decline in business. At his seminar, he’ll coach them on how to make 20 grand on a single loan, “as easy as shooting fish in a barrel.” He boasts of making 10 million dollars personally. To back up his claim of having the “financial secret,” one of his protégés testifies that he now makes “six times what I used to get on a loan, while working just 35 hours a week.” This is not a pitch for subprime loans; this guru’s borrowers have 720+ credit scores.

Don’t be deceived: The lust for money is alive and growing like a ravenous monster. New so-called anti-predatory laws lull people into a stupor, convincing them that all the bad loans have died like a fabled sea dragon—but that’s not true. Many of these laws are doing more harm than good, and bad advice disguised as helpful tips are circulating around the Internet faster than a nasty virus.

I know all too well. I’m in the trenches, in the thick of what’s going on, helping people avoid scams, ploys, and tricks—and get the best financing possible.

My Credentials

After working in subprime lending for Ameriquest, GreenTree Financial, and Full Spectrum Lending/Countrywide, I spent seven years working for a squeaky clean full-service mortgage broker in Seattle. During this time, I worked simultaneously as a mobile loan signer, which made me privy to the loan terms of dozens of additional lenders.

Then to advance my career, I accepted a position as an account executive with First Franklin, a wholesale mortgage company that lent money to mortgage brokers all across America. This made me privy to what went on behind closed doors: underwriting exceptions that turned denied loans into approvals, bribes, fraudulent loan applications, advertising strategies and ploys, “off sheet” rate pricing for “special clients,” lavish parties designed to bring in more business, and some shocking confessions made by certain individuals in management. First Franklin is no longer in business.

Now I’m back in touch with Main Street America, helping good folks buy houses and refinance. (For more information, see my Web site, www.AskCarolynWarren.com.) As a homebuyer’s advocate, I am telling you that it is possible to get a fantastic deal and save tens of thousands of dollars on your mortgage—but only if you avoid the financial land mines. That is what this book is all about: exposing the latest and greatest deceptions and helping people save a king’s ransom on their home financing.